A rather interesting comment from the Federal Reserve chair Janet Yellen during today’s Senate testimony re: the stock market (via WSJ’s Jon Hilsenrath):
The Federal Reserve’s focus on financial stability puts it in the unusual position of declaring where officials see asset valuations stretched and where it sees assets reasonably priced. The Fed’s semiannual report to Congress isn’t meant to be an investment guide, but it does include these tidbits:
The Fed says house prices are within historic norms, as measured by price-to-rent ratios. However stock market valuations for small firms, social media and biotechnology firms “appear to be stretched.” Meantime risk spreads on corporate bonds have reached all-time lows, a sign of over-valuation.
I like the idea of having a Fed Chair who goes industry-deep – not just broad sector exposure like Greenspan – when constructing portfolios. Curious about where she stands on Smart Beta, whether or not the small / value anomalies can persist and how she’s playing the taper.